The 1920s Are Repeating Themselves. Is that a good thing?

We have spent so much time wringing our hands about the supply chain that we have neglected to consider the underlying story: An historical rise in the demand for toys and consumer products coupled with a decline in workers.

When the pandemic first broke as an international news story, the initial fear was global recession. At the time, I thought about the 1918 Flu Pandemic and how there was no recession in the 1920s. In fact, it had launched the Roaring 20s, a time of dramatic economic expansion and social change.

Here is a quote from an article I wrote On May 18, 2020, entitled, “Was There an Economic Collapse Caused by the Flu Epidemic of 1918?” In it, I quoted a 2007 Federal Reserve report as follows:

“Most of the evidence indicates that the economic effects of the 1918 influenza pandemic were short-term.” In fact, “Some academic research suggests that the 1918 influenza pandemic caused a shortage of labor that resulted in higher wages (at least temporarily) for workers….”

“Economic Effects of the 1918 Influenza Pandemic,” written in 2007 by Thomas A. Garrett, Assistant Vice President and Economist, Federal Reserve Bank of St. Louis.

Sound familiar? Based on what we are seeing now regarding labor shortages and rising wages, it appears that the path followed in 1918 is replicating in 2021. If the future holds to the historical pattern (and it does not always do so), the next few years could put us at risk of a replay of the Roaring 20s. Times got so good that people lost their heads and invested too much at too much risk in speculative stocks. We know that ended in the Great Depression.

I am not saying that another Depression is in the future, but there are enough parallels (think cryptocurrencies) that it is worth thinking about.

So, bet on continuing economic growth for the next few years; just don’t bet too much.

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